Insurer Aviva, which manages a £20 billion commercial property portfolio, much of it tied up malls, believes that the rise of e-commerce means that bricks and mortar retail will decline significantly over the coming period. The sea change is predicted to be so big that investors in the U.S. are shorting the physical retail industry in expectation of a crash to rival the sub-prime mortgages collapse that ushered in the last financial crisis.

The comments made by Aviva Investors, the investment arm of the insurer, underline the growth of e-commerce while highlighting a worrying trend for companies heavily invested in retail property. Intu Properties, the London-listed shopping mall owner and manager that counts Manchester’s Trafford Centre and the Metro Centre in Gateshead in its portfolio dropped out of the FTSE 100 earlier this year. Perhaps even more significantly, the company moving in the other direction from the FTSE 250 to take its spot was Segro, a warehouse owner whose rise is tied to the e-commerce boom.

Aviva’s position on the direction of the market was made in a note to clients explaining its recent moves to cut back its exposure to physical retail, having sold 110 properties so far this year, for a total of £950 million, against 6 acquisitions. The flagship shopping centres Aviva is holding on to have been notably transformed in recent years into leisure ‘destinations’ with as much focus on dining and entertainment as retail. The upper floors of its Corn Exchange shopping centre in Manchester have also been given over to a hotel.

This all ties in with the company’s head of global research for real estate Chris Urwin, who commented that “the UK retail sector will need significantly fewer stores in the period ahead . . . We expect to see clear winners and losers.”

The sale of large swathes of Aviva’s retail property portfolio and re-allocation of space to leisure, entertainment and hotel space in the rest is a clear restructuring of assets for a new e-commerce focused retail industry.

Aviva believes that physical stores which do survive will do as a compliment to online shopping, merging e-commerce and physical retail. Future in-store customers will expect ‘instant gratification’ and no long queues.

Further evidence to support Aviva’s forecast comes from a June Colliers report on the retail property market that indicated the number of shop spaces tenantless for more than 2 years has risen by 20% to one in 28.

The value of the UK’s e-commerce market grew by around 16% between 2015 and 2016, to £133 billion. This compares with Office for National Statistics data showing overall growth in retail sales in the UK of 6% over the same period, suggesting that e-commerce gobbled up around 10% of the turnover going through bricks and mortar stores.

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